The Hon. Dr ARTHUR CHESTERFIELD-EVANS [11.52 a.m.]: TransGrid earns its keep by distributing electricity and has little interest or experience of alternative methods of supplying electricity or distributing other forms of energy. TransGrid is therefore unlikely to show much interest in proposals for distributed generation technologies, such as photovoltaics, wind power, and small local generators using biofuel or micro-hydroelectric schemes. It would also have little interest in demand management because that process cuts TransGrid out of the equation. Indeed, demand management would involve money that TransGrid might otherwise have got for those projects. Demand management schemes not involving networks are TransGrid's direct competitor, so effectively Dracula is in charge of the blood bank. The greater utilisation of localised co-generation plants would also be against TransGrid's commercial interest.

In this connection one must remember that approximately 20 per cent of the total energy transmitted by TransGrid, the New South Wales transmission operator, is consumed by four customers, who are engaged in the aluminium and steel manufacturing sectors. According to the Minister, the demand management code of practice requires the evaluation of alternative methods of solving demand problems. However, the experience and ethos of TransGrid is not well suited to giving such proposals fair evaluation. The performance of the national electricity market, as the historical excess in capacity is consumed by load growth, is untested. Some elements within the electricity supply industry are using this uncertainty to call for the Government to again start investing in large-scale electricity infrastructure, to avoid a Californian, or even a South Australian, situation. If the Government wanted to do that, the best thing to do would be to upgrade the distribution network infrastructure, rather than construct another generator.

What is not well known is that most blackouts are caused by substation failures. Obviously, therefore, embedded generation that lessened the pressure on substations would be a way of increasing the reliability of supply. The bill leaves a lot to be desired. It is more about rhetoric; it is more about empowering the Minister than having a program and following it through. It shows that when it comes to the crunch, the Carr Government is more about rhetoric than action when it comes to implementing sustainable energy policy in our State. I am a little disappointed in the Opposition because it did not say what it would do or what should be done; it merely criticised the Government for having blackouts and predicted that more blackouts would occur. If the Coalition aspires to be an alternative government, it should say what ought to be done. The bill effectively serves to empower the Minister and does not take demand side management seriously. I visited Minister Yeadon on 3 August 2000 and provided him with material on the issue. I gave him a document setting out the following key points:

1. TransGrid is planner, operator and constructor and is in a conflict of interest situation which it seems unwilling to acknowledge, let alone address. This was made clear in its Planning Forum in June [2000]. Ashock Manglick [who was an officer of TransGrid at the time] stated that TransGrid could not fund any non-network options, even if they had a lower NPC than a network option. It would seem that a limited reading of their regulation is being used to state that they cannot consider consequences outside electricity costs and benefits (such as other unrelated benefits of non-network strategies like availability of gas).

In other words, TransGrid had the problem that it was only considering electricity costs and benefits and it could not take a broader view. Therefore, it was impossible for TransGrid to evaluate non-network options, even if it chose to do so, because this was not in the company's commercial interest. The document continued:

2. There are numerous overseas examples of large projects similar to the Sydney CBD augmentation that have been managed by DSM or other strategies. In NZ the transmission utility Southpower used aggressive DSM and other non-network options to increase their utilisation from 50% to 60%. The peak load fell from 540mw in 1994 to 530mw in 1999, leading to the permanent deferral of the $NZ220m network construction option.

This is a major saving, and it shows what can be done if demand side management is pursued as a serious option. The document continued:

Toronto Ontario Hydro invested $C100m in distribution reconfiguration and DSM to save doing a $C300m augmentation. New York State's investment of $US45,000 in communications and metering hardware avoided $6.5 m in transmission and distribution.

3. Integral Energy looked at 14 projects. Of these, 2 were solved by DSM, 2 had network expansion limited by DSM, and in 5 cases it was not feasible. 5 required further investigation. In short, of 9 resolved cases 2 were solved by DSM, and 2 were significantly improved. It might be noted that Integral Energy are also a retailer, and that they are also strapped for cash, so are more likely to look for the most cost-effective solutions. But they spent $1.36m to save $21.29m in capital expenditure and $10.61m in NPV. TransGrid were given this information as an Appendix to the SEDA submission.

4. In contrast to (3) above, TransGrid looked at 6 projects. All were given network augmentation solutions. There are 23 future projects. In each case the phrase is "at this stage the preferred network option is …" and then there is a network or transformer solution. In no case is DSM preferred or evaluated. This suggests that TransGrid is unwilling or incapable of seriously considering options other than network augmentation. While it is able to be both assessor and builder and while it has the ear and financial backing of government, this is likely to continue.

5. An academic paper by Prof. Hugh Outhred analysing the TransGrid augmentation decisions in the CBD, Molong and Balranald is attached in Appendix E.

6. With regard to the TransGrid CBD option, reliability is used as the criteria for the augmentation. This is another way of asking for a non-market solution. The reliability criterion is arbitrarily defined by TransGrid. It is also by no means certain that augmentation is the most cost-effective way of achieving reliability.

7. It might be noted that DSM and more widespread generation and cogeneration options are good for reliability. In general they are also better for the greenhouse, as they involve reduced consumption or more modern sustainable or gas options. Australia's greenhouse record is poor.
Professor Outhred is critical that the reliability benefits are being overstated. The last CBD blackout would not have been affected by the planned augmentation. The reason for that is, as I stated, that the blackout that occurred in 2000 was caused by a substation failure. Improving the distribution cabling from the Hunter Valley generators to the CBD would have upstreamed it, to put it that way, from the substation that had failed. There was a lot of publicity at that time.

It might be noted that the CBD option, which I think was $170 million, was pushed through despite discussions of demand side management, and the Minister said, "Let us have this one and after we have done that we will seriously consider demand side management". Of course, five years down the track that has been pushed through and again we still have no consideration systematically of demand side management by this Government. It might also be noted that demand side management and more widespread generation and cogeneration options are good for reliability. In general, they are also better for the greenhouse emissions; they involve reduced consumption or more modern sustainable gas options. Australia's gas record is poor.